Link reading good article: What is the difference between hot encrypted storage and cold encrypted storage?

After purchasing cryptocurrencies, deciding how and where to store your assets is a very important step.Unlike physical currencies, cryptocurrencies run on a blockchain and therefore require a digital storage system called a wallet.Like cash wallets, crypto wallets allow you to hold and transfer funds.The similarities end there.Crypto wallets consist of public and private keys, which are strings that allow holders to receive and transfer their crypto assets.

Crypto wallets have two types of storage options, depending on preference: "hot" storage and "cold" storage.Hot storage is an application or platform connected to the internet, while cold storage is stored offline, usually via a physical device such as a thumb drive.While both hot and cold storage systems allow individuals to access their digital funds, they differ in terms of user experience and security levels.

Which option is right for you is a matter of personal choice.The correct answer may be a combination of these two options, depending on what you want to do with your cryptocurrency in the long and short term.

Hot vs. Cold Storage: Pros and Cons

Hot storage refers to an application or platform that connects to the internet and allows you to manage your cryptocurrency holdings.Many of these services are free and available on a computer or mobile device.Some examples of hot wallets include the following software:

MetaMask: A popular browser plugin that acts as a wallet for Ether (ETH) and other ERC-20 tokens

Exodus: desktop and mobile software that connects to the Exodus decentralized exchange and supports over 150 cryptocurrencies

Mycelium: A full-fledged, Bitcoin-centric mobile app with native transaction options

Some cryptocurrency exchanges, including Coinbase (COIN), Gemini, and Binance, also offer wallets for seamlessly buying, trading, and selling cryptocurrencies on their platforms.

Advantages of hot storage:

User friendly: Because they are always connected to the internet, these platforms allow you to easily store and access your cryptocurrencies from anywhere.

Fees: Most hot wallets are free to use.

Convenience: If you use a hot wallet linked to a specific exchange, you can easily interact within that ecosystem.

Disadvantages of hot storage:

Security: While hot wallets are generally safe, they are connected to the internet and are therefore more vulnerable to hacking.

Accessibility: Because they require an internet connection, some wallet functions may be restricted in certain countries or jurisdictions, depending on local laws.

On the other hand, cold storage keeps the user's private key offline, thus adding an extra layer of security against potential hacking.While a hardware wallet is not an absolute requirement to move your cryptocurrency into cold storage, most people will opt for a hardware solution such as:

Ledger: A USB-like device that allows users to buy, exchange and stake over 1,000 cryptocurrencies

Trezor: a small plug-in device compatible with over 1000 cryptocurrencies, available on both PC and mobile devices

Cold storage allows users to have complete control over their private keys and assets, but is also more expensive.

Advantages of cold storage:

Portability: Cold storage solutions are typically small plug-in devices that can be carried anywhere in the world and can be easily used to log into decentralized applications.

Security: Your private key never leaves the device, and transactions are signed locally, greatly reducing the risk of a cyber attack on the device.

Autonomy: Cold storage allows you to be the sole custodian of your crypto assets, eliminating third-party applications from your storage experience.

Disadvantages of cold storage:

Price: Hardware wallets cost between $79 and $255, more expensive than online options.

Transfers: Transfers between cold storage devices are slightly more troublesome than hot storage wallets.

Layout: Some people may experience a learning curve in how to use the small screen on their hardware device.

Heat vs. Cold: Which Is Safest?

While there have been several notable hacks related to hot storage wallets, the security measures are still improving.In September 2020, a security breach at Singapore-based exchange KuCoin resulted in the destruction of approximately $281 million worth of crypto assets, but most of the funds were later recovered.In July 2019, Japanese cryptocurrency exchange Bitpoint lost around $32 million in user funds to a hack.

User data of the cold storage system Ledger was compromised in July 2020, but no user funds were stolen.

Ultimately, there are several factors to consider when deciding whether to use a cold or hot wallet.Many people use a combination of hot and cold storage options to create a safe and seamless trading experience, and most exchanges, including Coinbase, keep user funds in a variety of cold storage options, which Coinbase calls the "gold standard" encryptionSecurity of currency assets."Usually, experts recommend storing large amounts of cryptocurrencies or cryptocurrency assets that users do not need to access frequently in cold storage.